HSAs can earn interest, but only if you keep money in a savings account rather than spending it

Most HSAs do earn interest, though the rate depends on how your account is set up and which bank or custodian holds it. If you use your HSA debit card to pay medical bills immediately, the money never sits long enough to earn anything. But if you leave funds in a savings vehicle within the account, they will accrue interest at whatever rate that account offers — typically between 0.01% and 5% annually, depending on current market conditions and your provider.

The catch is that you have to choose to keep the money there. Many HSA holders treat the account like a checking account and drain it as soon as they contribute. That works fine if you need the money for medical expenses right now. But if you have the cash to cover this year's medical costs from your regular paycheck, leaving your HSA balance untouched lets it grow.

Key Takeaways

  • HSA interest rates vary by provider and account type, ranging from nearly zero to around 5% depending on market conditions.
  • You earn interest only on money that sits in a savings or money market account within your HSA, not on funds held in a non-interest-bearing checking feature.
  • Some HSA providers offer investment options like mutual funds or stocks, which can grow faster than savings accounts but carry risk.
  • Interest and investment gains in an HSA are tax-free as long as you use the money for may have access to medical expenses.

How interest rates work across different HSA providers

HSA interest rates are not set by law — they are set by the bank or custodian managing your account. A large employer plan might use one provider; an individual HSA might use another. Rates change with the broader economy, so what you earn this year may not match what you earn next year.

Some providers offer tiered rates, meaning you earn a higher percentage on larger balances. Others offer a flat rate regardless of how much you hold. A few HSA custodians offer no interest at all and instead charge a monthly maintenance fee, which is why it pays to check what your specific provider offers before you open an account or accept an employer plan.

You can usually find your current interest rate in your account dashboard or by calling your HSA provider's customer service line. If the rate is very low or the account charges fees that eat into earnings, you may be able to roll your HSA to a different provider — though the process varies and some employers restrict which custodians you can use.

The difference between savings accounts and investment options

A savings account within your HSA is the safest way to earn money on your balance. The interest is modest but may provide, and your principal does not fluctuate. This works well if you want steady, predictable growth with no risk.

Some HSA providers also let you invest in mutual funds, index funds, or individual stocks within the account. These can grow much faster than a savings account over time, but they can also lose value in the short term. If you invest your HSA and the market drops before you need the money for a medical bill, you might have to sell at a loss. This route makes sense only if you have enough cash elsewhere to cover medical expenses and can leave your HSA untouched for years.

A common middle-ground approach is to keep a year or two of expected medical expenses in the savings account and invest the rest. That way you have money available without penalty if you need it, but you also capture potential growth on the surplus.

Tax treatment of HSA interest and investment gains

Interest you earn in an HSA is not taxed as income, and investment gains are not taxed as capital gains — as long as you eventually use the money for may have access to medical expenses. This is one of the biggest advantages of an HSA over a regular savings account or brokerage account.

If you withdraw money for a non-medical expense before age 65, you owe income tax on the earnings plus a 20% penalty. After age 65, you can withdraw for any reason without the penalty, though you still owe income tax on the earnings portion (not the contributions). This makes an HSA a powerful long-term savings tool if you can afford to leave it alone.

How to maximize interest on your HSA

The most straightforward way to earn more interest is to contribute the maximum allowed each year and leave the money untouched if you can afford to pay medical expenses from your regular income. For 2024, the limit is $4,150 for individual coverage and $8,300 for family coverage, though these amounts change annually.

If your employer offers an HSA match — meaning they contribute money on top of your own contributions — that is assistance programs that will also earn interest. Take full advantage of any match before you contribute to other retirement accounts.

You can also shop around for HSA providers if your current one offers very low rates or high fees. Some online banks and credit unions offer HSAs with higher interest rates than large national banks. Moving an HSA to a new provider is called a trustee-to-trustee transfer and does not trigger taxes or penalties, though it may take a few weeks to complete.

What happens to HSA interest if you change jobs

Your HSA belongs to you, not your employer, so the interest you have earned stays with you when you leave a job. You can roll the account to a new employer's plan, move it to an individual HSA, or leave it where it is — the interest does not disappear either way.

If your new employer offers an HSA with a different custodian, you can transfer your balance to that plan. If you prefer to keep your current account, you can usually do that and contribute to it even after you leave the employer, as long as you remain enrolled in a high-deductible health plan.

Frequently Asked Questions

How much interest can I realistically earn on an HSA?

It depends on your balance, the interest rate your provider offers, and how long you leave the money untouched. If your HSA earns 4% annually and you keep a $5,000 balance, you would earn about $200 per year. Larger balances or higher rates earn more, but the interest is modest compared to what you might earn by investing in stocks or funds within the account.

Do I have to keep my HSA in a savings account, or can I invest it?

Most providers let you choose. You can keep it in a savings account, invest in mutual funds or stocks, or split between both. Check your provider's website or call them to see what investment options are available on your specific plan.

If I earn interest in my HSA, do I have to report it to the IRS?

Interest earned in an HSA is not reported as taxable income as long as you use the money for may have access to medical expenses. If you withdraw for a non-medical reason before age 65, you owe income tax on the earnings portion plus a 20% penalty.

Can I move my HSA to a different provider to get a higher interest rate?

Yes, through a trustee-to-trustee transfer. Contact the new provider and they will handle moving your balance. It typically takes one to three weeks and does not trigger taxes or penalties. Some employer plans restrict which custodians you can use, so check your plan documents first.

What if my HSA provider charges fees that are higher than the interest I earn?

If fees exceed your interest earnings, you are losing money. Look for a provider with lower fees or no fees. Individual HSAs often have better rates and lower fees than employer plans, and you can roll your balance to one if your employer plan is not competitive.